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Supreme Industries (Accumulate)
CMP: ₹1,098.4
Target: ₹1,2865
Supreme operates in five major business verticals namely plastic piping, consumer products, packaging products, industrial products and composite products. Some of its products include moulded furniture, storage & material handling products, plastic piping system and protective packaging products.
Despite 13.5 per cent growth in commodity natured plastic piping business last quarter, its EBIT plunged by an alarming 27.1 per cent.; sharp fall in EBIT was also observed in all other businesses, EBIT for packaging products business, for instance dropped by some 40 per cent last quarter. Sharp fall in operating profits hastened stellar declines in both PBT (down by 38.2 per cent) and adjusted post tax earnings (declined about 35 per cent), thus barely getting any help from one time gain of ₹11.31 crore reported on sale of land and building at Hosur Unit –I.
The stock currently trades at 30.9x FY20e EPS of ₹35.34 and 25.9x FY21e EPS of ₹42.16. No small margin stress (14 per cent OPM Vs 15.8 per cent expected) coupled with moderation in revenue growth precipitated earning shortfall of nearly 15 per cent last fiscal. Yet recovery is on cards for margin is estimated to stabilise on revival in consumer demand.
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